How are these tools being used to protect and preserve family wealth intergenerationally whilst also mitigating IHT intergenerationally? How are planners having to adapt their planning process, if at all, to incorporate the younger generation to preserve generations of planning for the future? As Edward Counsel once said, “if we could unfold the future, the present would be our greatest care”.
Protection providers are starting to incorporate products such as Children’s CIC into Business Protection policies, but in terms of wider planning opportunities, there are products and providers that can be combined to protect and preserve family wealth intergenerationally, while also mitigating IHT intergenerationally.
For example, the Way Group offers the Inheritor Plan which is a flexible plan with potential reversions to the settlor on each anniversary, along with the ability for trustees to appoint or loan money to the beneficiaries at any point.
Along with a 125-year perpetuity period, this plan allows advisers to protect and preserve the wealth of their clients intergenerationally. The most common uses of the loan facility are to assist beneficiaries with buying a house outright or with a deposit or supplementing a surviving spouse/civil partner’s income.
Few (non-trust) intergenerational wealth transfer strategies have the same level of family wealth preservation (particularly with the use of loans) while also having the ability to invest in conventional lower-risk assets.
Parents or grandparents could loan or gift money directly, but this would not afford the same combination of flexibility, IHT mitigation and wealth preservation/protection. The 7-year rule applies at the point a direct gift is made to remove it from their IHT-assessable estate, but the money now forms part of the recipient’s estate immediately.
The issue here is that if the recipient(s) get divorced or have their own IHT liabilities, money could be lost to the family. If instead the parents/grandparents loan money directly to their children/grandchildren, the loan remains in the lender’s IHT-assessable estate but can be protected in the event of divorce/their own IHT liabilities. In addition, any loan from the Inheritor Plan can, at the Trustees discretion, remain outstanding for the recipient’s lifetime (or the end of the 125-year perpetuity period, whichever comes sooner), thereby netting off against their estate for Probate & IHT purposes.
John Humphreys, Head of Sales at WAY Group, told me that: -
- 97 per cent of WAY Flexible Inheritor Plan reversions are deferred by the trustees to a later anniversary as the settlor does not need any ‘income’ but they like the comfort that it is available to them should their circumstances change (such as requiring care or the demise of a spouse/civil partner drastically reducing their income, i.e., reducing to 50 per cent widows’ pension).
